Exhibit 99.1
LINN ENERGY, LLC
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2011
INDEX
| Financial Information | | Page Number |
| | | | |
| Unaudited Pro Forma Condensed Combined Statement of Operations | | 2 | |
| Notes to Unaudited Pro Forma Condensed Combined Statement of Operations | | 3 | |
LINN ENERGY, LLC
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2011
| | | LINN Energy | | Panther Historical | | SandRidge Historical | | Concho Historical | | Pro Forma Adjustments | | LINN Energy Pro Forma |
| | | (in thousands, except per unit amounts) |
| Revenues and other: | | | | | | | | | | | | | | | | | | | |
| Oil, natural gas and natural gas liquids sales | | $ | 835,579 | | | $ | 24,968 | | | $ | 8,349 | | | $ | 5,899 | | | $ | — | | | | $ | 874,795 | |
| Gains on oil and natural gas derivatives | | | 660,279 | | | | — | | | | — | | | | — | | | | — | | | | | 660,279 | |
| Marketing revenues | | | 4,159 | | | | — | | | | — | | | | — | | | | — | | | | | 4,159 | |
| Other revenues | | | 3,564 | | | | — | | | | — | | | | — | | | | — | | | | | 3,564 | |
| | | | 1,503,581 | | | | 24,968 | | | | 8,349 | | | | 5,899 | | | | — | | | | | 1,542,797 | |
| Expenses: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Lease operating expenses | | | 165,171 | | | | 2,694 | | | | 2,161 | | | | 437 | | | | — | | | | | 170,463 | |
| Transportation expenses | | | 20,152 | | | | — | | | | — | | | | — | | | | — | | | | | 20,152 | |
| Marketing expenses | | | 2,703 | | | | — | | | | — | | | | — | | | | — | | | | | 2,703 | |
| General and administrative expenses | | | 91,994 | | | | — | | | | — | | | | — | | | | — | | | | | 91,994 | |
| Exploration costs | | | 1,498 | | | | — | | | | — | | | | — | | | | — | | | | | 1,498 | |
| Bad debt expenses | | | 74 | | | | — | | | | — | | | | — | | | | — | | | | | 74 | |
| Depreciation, depletion and amortization | | | 234,039 | | | | — | | | | — | | | | — | | | | 12,071 | | (a) | | | 246,268 | |
| | | | | | | | | | | | | | | | | | | | 158 | | (b) | | | | |
| Taxes, other than income taxes | | | 56,920 | | | | 1,641 | | | | 708 | | | | 651 | | | | — | | | | | 59,920 | |
| Losses on sale of assets and other, net | | | 1,870 | | | | — | | | | — | | | | — | | | | — | | | | | 1,870 | |
| | | | 574,421 | | | | 4,335 | | | | 2,869 | | | | 1,088 | | | | 12,229 | | | | | 594,942 | |
| Other income and (expenses): | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loss on extinguishment of debt | | | (94,372 | ) | | | — | | | | — | | | | — | | | | — | | | | | (94,372 | ) |
| Interest expense, net of amounts capitalized | | | (191,673 | ) | | | — | | | | — | | | | — | | | | (6,088 | ) | (c) | | | (198,551 | ) |
| Losses on interest rate swaps | | | — | | | | | | | | | | | | | | | | (790 | ) | (d) | | | | |
| Other, net | | | (6,331 | ) | | | — | | | | — | | | | — | | | | — | | | | | (6,331 | ) |
| | | | (292,376 | ) | | | — | | | | — | | | | — | | | | (6,878 | ) | | | | (299,254 | ) |
| Income before income taxes | | | 636,784 | | | | 20,633 | | | | 5,480 | | | | 4,811 | | | | (19,107 | ) | | | | 648,601 | |
| Income tax expense | | | (8,730 | ) | | | — | | | | — | | | | — | | | | — | | (e) | | | (8,730 | ) |
| Net income | | $ | 628,054 | | | $ | 20,633 | | | $ | 5,480 | | | $ | 4,811 | | | $ | (19,107 | ) | | | $ | 639,871 | |
| Net income per unit: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic | | $ | 3.63 | | | | | | | | | | | | | | | | | | | | $ | 3.65 | |
| Diluted | | $ | 3.62 | | | | | | | | | | | | | | | | | | | | $ | 3.64 | |
| Weighted average units outstanding: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic | | | 171,076 | | | | | | | | | | | | | | | | | | | | | 173,382 | |
| Diluted | | | 171,825 | | | | | | | | | | | | | | | | | | | | | 174,131 | |
The accompanying notes are an integral part of these pro forma condensed combined statements of operations.
LINN ENERGY, LLC
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS
Note 1 – Basis of Presentation
The unaudited pro forma condensed combined statement of operations of Linn Energy, LLC (“LINN Energy” or the “Company”) for the nine months ended September 30, 2011, is derived from:
| · | the historical consolidated financial statements of LINN Energy; |
| · | the historical statements of revenues and direct operating expenses of certain oil and natural gas properties acquired from Panther Energy Company, LLC and Red Willow Mid-Continent, LLC (collectively referred to as “Panther” and the properties, the “Panther Properties”); |
| · | the historical statements of revenues and direct operating expenses of certain oil and natural gas properties acquired from SandRidge Exploration and Production, LLC (“SandRidge” and the properties, the “SandRidge Properties”); and |
| · | the historical statements of revenues and direct operating expenses of certain oil and natural gas properties acquired from an affiliate of Concho Resources Inc. (“Concho” and the properties, the “Concho Properties” and together with the Panther Properties and the SandRidge Properties, the “Properties”). |
The unaudited pro forma condensed combined statement of operations gives effect to the acquisitions of Properties as if the transactions had occurred on January 1, 2010. The transactions and the related adjustments are described in the accompanying notes. In the opinion of Company management, all adjustments have been made that are necessary to present fairly, in accordance with Regulation S-X, the pro forma condensed combined statement of operations.
The unaudited pro forma condensed combined statement of operations is presented for illustrative purposes only, and does not purport to be indicative of the results of operations that would actually have occurred if the transactions described had occurred as presented in such statement or that may be obtained in the future. In addition, future results may vary significantly from those reflected in such statement due to factors described in “Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, and elsewhere in the Company’s reports and filings with the Securities and Exchange Commission (“SEC”).
The unaudited pro forma condensed combined statement of operations should be read in conjunction with the Company’s historical consolidated financial statements and the notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2010, and Quarterly Report on Form 10-Q for the three months and nine months ended September 30, 2011.
Note 2 – Acquisition Dates
The results of operations of the Properties have been included in the historical financial statements of the Company since their respective acquisition dates.
The acquisition of Panther Properties was completed on June 1, 2011, with an effective date of January 1, 2011, for total consideration of approximately $222 million.
The acquisition of SandRidge Properties was completed on April 1, 2011, with the same effective date, for total consideration of approximately $201 million.
The acquisition of Concho Properties was completed on March 31, 2011, with an effective date of March 1, 2011, for total consideration of approximately $194 million.
Note 3 – Preliminary Acquisition Accounting
These acquisitions were accounted for under the acquisition method of accounting. Accordingly, the Company conducted assessments of net assets acquired and recognized amounts for identifiable assets acquired and liabilities
LINN ENERGY, LLC
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS - Continued
assumed at their estimated acquisition date fair values, while transaction and integration costs associated with the acquisitions were expensed as incurred. The initial accounting for the business combinations is not complete and adjustments to provisional amounts, or recognition of additional assets acquired or liabilities assumed, may occur as more detailed analyses are completed and additional information is obtained about the facts and circumstances that existed as of the acquisition dates.
The following presents the values assigned to the net assets acquired as of the acquisition dates (in thousands):
| Assets: | | | |
| Current | | $ | 675 | |
| Oil and natural gas properties | | | 625,275 | |
| Total assets acquired | | $ | 625,950 | |
| | | | | |
| Liabilities: | | | | |
| Current | | $ | 2,287 | |
| Asset retirement obligations | | | 6,813 | |
| Total liabilities assumed | | $ | 9,100 | |
| Net assets acquired | | $ | 616,850 | |
Current assets include inventory of oil produced but not yet sold. Current liabilities include ad valorem taxes payable and other liabilities.
The fair values of oil and natural gas properties and asset retirement obligations were measured using valuation techniques that convert future cash flows to a single discounted amount. Significant inputs to the valuation of oil and natural gas properties include estimates of: (i) reserves; (ii) future operating and development costs; (iii) future commodity prices; (iv) estimated future cash flows; and (v) a market-based weighted average cost of capital rate.
Note 4 – Pro Forma Adjustments
The Company’s historical results of operations include the results of Properties acquired from Panther, SandRidge and Concho since the acquisition dates. The pro forma statement of operations includes adjustments to reflect the acquisitions as if they had occurred on January 1, 2010. The unaudited pro forma condensed combined statement of operations has been adjusted to:
| (a) | record incremental depreciation, depletion and amortization expense, using the units-of-production method, related to oil and natural gas properties acquired as follows: |
| | · | For the period from January 1 through June 1, 2011, $7 million related to the Panther Properties. |
| | · | For the period from January 1 through April 1, 2011, $2 million related to the SandRidge Properties. |
| | · | For the period from January 1 through March 31, 2011, $3 million related to the Concho Properties. |
| (b) | record accretion expense related to asset retirement obligations on oil and natural gas properties acquired as follows: |
| | · | For the period from January 1 through June 1, 2011, $26,000 related to the Panther Properties. |
| | · | For the period from January 1 through April 1, 2011, $128,000 related to the SandRidge Properties. |
| | · | For the period from January 1 through March 31, 2011, $3,000 related to the Concho Properties. |
LINN ENERGY, LLC
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS - Continued
| (c) | record interest expense as follows: |
| | · | incremental debt of approximately $222 million incurred to fund the purchase price of the Panther Properties; the assumed interest rate was 6.5%; a 1/8 percentage change in the assumed interest rate would result in an adjustment of approximately $141,000 to pro forma net income |
| (d) | record incremental amortization of deferred financing fees associated with debt incurred to fund the purchase price of the Panther Properties |
| (e) | The Company is treated as a partnership for federal and state income tax purposes. The Company subsidiaries that acquired the Properties are also treated as partnerships for federal and state income tax purposes. Accordingly, no recognition has been given to federal and state income taxes in the accompanying unaudited pro forma condensed combined statements of operations. |
The pro forma statements of operations also include an adjustment to the weighted average units outstanding to reflect units issued to fund the purchase price of the SandRidge Properties and the Concho Properties.
